The speed at which Kenyans raised Sh150 million through M-Akiba—the first mobile phone-based bond issue in the world—should have banks worried sick as it has the potential of changing the way the entire country does business.
First, commercial banks and non-banking financial institutions will have no option but to go back to the drawing board to recalibrate the difference between the interest rate paid to depositors and that which they charge borrowers.
The clock is ticking and the days when savers were treated shabbily and paid peanuts are drawing nearer. The banks have traditionally paid ordinary savers about two per cent and fixed term depositors about seven per cent per annum.
Previously, borrowers were at the mercy of banks, which also successfully fought off all regulatory efforts to control lending rates until Parliament capped interest rates.
Time will tell
But unknown to call depositors and the regulator—Central Bank of Kenya (CBK)—the banks changed interest-earning deposit accounts into transactional accounts to avoid paying the deposit rate imposed by the Banking Amendment Act.
That meant that call deposits that were kept for seven days earned one per cent interest even when there were frequent deposits while withdrawals were turned into non-interest earning accounts. That is how banks are avoiding paying the depositors the seven per cent mandated by the new law.
Whether CBK will allow the banks to get away with the new sleight of hand to avoid paying depositors what is due to them according to the law, only time will tell. What is clear, though, is that these customers with some funds to spare will be among the first Kenyans to lend to the Government the Sh4.85 billion it’s seeking to raise through the M-Akiba platform when it goes back to the market in June after the successful piloting in raising the Sh150 million ahead of schedule.
It is clear that ordinary Kenyans who previously kept their money in savings accounts earning peanuts will be more than happy to lend to Government, with guaranteed returns of 10 per cent on their money.
Indeed, lending to the State is so lucrative that the banks fiercely compete against each other and other non-banking financial institutions including pension funds and insurance firms every time Treasury floats bills and bonds. But the laborious tendering procedures used in buying these Treasury bills and bonds and the relatively high entry level of Sh50 million keeps ordinary Kenyans out of the exercise.
Analysts hope that the success of the M-Akiba mobile bond will embolden Treasury to issue more and bigger bonds, allowing more Kenyans to reap better returns on their investment.
Hopes are high, too, that Kenyans who are more comfortable keeping their money under
mattresses will be encouraged to put it into circulation where it will spur economic development.
But the success of the new innovation is not guaranteed. Its uniqueness means that it has to be marketed extensively, especially among the rural population. This is because very few individuals from these areas were aware of the last issue.